PRASHANT KUMAR AGRAWALA, MUMBAI V. DCIT CIR 8(1), MUMBAI

ITA 7741/MUM/2011

• Counselvise Citation: 774119914 RSA 2011
• Duration Of Justice: 1 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 16-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A
• Assessee Lawyers: NISHIT GANDHI IZRFKHZ DH LS
• Keywords: Capital receipt
• Section: 10

Judgement Text

PRASHANT KUMAR AGARWAL. - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D L NL; DS LE{K BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.7741/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2008-09 PRASHANT KUMAR AGARWAL 602 MANSAROVAR PODDAR BAUG, M.G. RD KANDIVALI WEST MUMBAI. PAN: AABPA7141D CUKE@ VS. DCIT CIR 8(1) 2 ND FLOOR, AAYAKAR BHAVAN, CHURCHGATE MUMBAI. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI NISHIT GANDHI IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI R.A PANT VKNS' VKNS' VKNS' VKNS'K@ K@K@ K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 2.9.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE ONLY DISPUTE R AISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING ADDITION MADE BY AO ON ACCOUNT OF CAPI TAL SUBSIDY CREDITED IN THE CAPITAL ACCOUNT OF ASSESSEE IN THE FIRM. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS A P ARTNER IN THE FIRM M/S BOUTIQUE CREATIONS. THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT A SUM OF RS. 5,29,000/- HAD BEEN CREDITED IN THE CAPITAL ACCOUNT S OF THE ASSESSEE IN THE FIRM ON ACCOUNT OF CAPITAL SUBSIDY. THE ASSESSEE EXPLAINED THAT THE FIRM HAD RECEIVED CREDIT LQUOKBZ DH RKJH[K@ DATE OF HEARING 30-7-2013 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 7-8-2013 PRASHANT KUMAR AGARWAL. - 2 - LINKED CAPITAL SUBSIDY UNDER TUFS SCHEME OF RS. 10, 59,000/- WHICH BEING A CAPITAL SUBSIDY HAD BEEN TRANSFERRED TO THE PARTNERS CAPITA L ACCOUNT IN THEIR PROFIT SHARING RATIO. THE SAME WAS THEREFORE EXEMPT U/S 10(2A) OF THE ACT . THE AO HOWEVER OBSERVED THAT SUCH CAPITAL SUBSIDY HAD NOT BEEN INCLUDED IN THE T OTAL INCOME OF THE ASSESSEE. IT WAS NOTED BY HIM THAT ONLY THE TOTAL INCOME OF THE ASSE SSEE DISTRIBUTED TO THE PARTNERS IN THE PROFIT SHARING RATIO WAS EXEMPT U/S 10(2A). SIN CE CAPITAL SUBSIDY HAD NOT BEEN INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE OF THE ASSESSEE AND HAD BEEN TAKEN DIRECTLY INTO THE BALANCE SHEET, THE AO ADDED THE SUM OF RS. 529000/- TO THE TOTAL INCOME HOLDING THE SAME AS NOT EXEMPT U/S 10 (2A). IN APPE AL CIT(A) OBSERVED THAT THE CAPITAL RECEIPT ON ACCOUNT OF SUBSIDY WAS NOT TAXABLE IN TH E CASE OF THE PARTNERSHIP FIRM. HOWEVER HE FURTHER OBSERVED THAT AFTER RECEIVING TH E CAPITAL SUBSIDY, IF THE PARTNERSHIP FIRM DISTRIBUTED OR GAVE IT AWAY TO THE PARTNERS, I T ASSUMED A DIFFERENT CHARACTER. THEREFORE, THOUGH THE RECEIPT WAS CAPITAL IN NATURE IN THE HAND OF THE PARTNERSHIP FIRM IT WOULD BECOME REVENUE IN NATURE IN THE HANDS OF THE PARTNERS. HE ACCORDINGLY CONFIRMED THE ADDITION MADE BY AO, AGGRIEVED BY WHICH THE ASS ESSEE IS IN APPEAL BEFORE TRIBUNAL. 3. BEFORE US LEARNED AR FOR THE ASSESSEE SUBMITTED TH AT CAPITAL SUBSIDY WAS NOT THE REVENUE RECEIPT AND, THEREFORE, IT HAD BEEN DISTRIBUTED TO THE PARTNERS IN THE PROFIT SHARING RATIO AND TAKEN INTO BALANCE SHE ET. THE TAXABILITY OF SUBSIDY COULD BE CONSIDERED ONLY IN CASE OF THE FIRM AND NO ADDITION COULD BE MADE IN CASE OF THE PARTNERS. THE LEARNED DR ON THE OTHER H AND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING TAXABILITY OF RECEIPT ON ACCOU NT OF CAPITAL SUBSIDY RECEIVED BY THE ASSESSEE FROM THE PARTNERSHIP FIRM. THERE IS NO DISPUTE THAT SUBSIDY RECEIPT WAS CAPITAL IN NATURE AND THE SAME WAS NOT TAXABLE IN CASE OF THE FIRM AS NOTED BY CIT (A) HIMSELF. CIT (A) HAS HOWEVER OBSERVED TH AT THE SHARE IN THE CAPITAL SUBSIDY OF THE PARTNER WILL BE REVENUE IN NATURE AS THE NATURE OF THE SUBSIDY RECEIPTS CHANGES AFTER THE SAME IS DISTRIBUTED TO T HE PARTNERS. WE ARE HOWEVER UNABLE TO ACCEPT THE VIEW TAKEN BY CIT (A). DISTRIB UTION OF SURPLUS BY THE FIRM TO THE PARTNER CANNOT BE CONSIDERED AS TAXABLE IN THE HAND OF THE PARTNERS. THE PARTNERS COULD ALWAYS WITHDRAW MONEY FROM FIRM AND SUCH WITHDRAWAL WILL ONLY PRASHANT KUMAR AGARWAL. - 3 - BE CAPITAL IN NATURE AND IT COULD NOT BE HELD TO BE TAXABLE. IN THIS CASE THE FIRM HAS DISTRIBUTED THE TAX FREE INCOME IN THE FORM OF SUBSIDY TO THE PARTNERS WHICH WAS CREDITED TO THEIR CAPITAL ACCOUNT. SUCH RECEIPT BY THE PARTNERS CANNOT BE CONSIDERED ON REVENUE ACCOUNT AND HELD TAXABLE. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 7-8-2013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 7.8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI